Economists Wrestle With Efficiency of Health Care Delivery

Even with perfect productive efficiency in which health care resources are put to the best use possible, the United States cannot cover all services for all people—this was 1 of several messages that 2 health care economists recently presented at the Federal Reserve Bank of Kansas City symposium in Jackson Hole, Wyoming.

In their paper Aspirin, Angioplasty, and Proton Beam Therapy: The Economics of Smarter Health Care, Katherine Baicker and Amitabh Chandra discuss how certain "policy levers"—such as provider- and patient-side incentives—can improve the efficiency of health care spending. While shared-savings bonuses under accountable care organizations (ACOs) may provide incentives for cost-saving innovations, the authors explain, it is unclear if ACOs will sidestep cost-ineffective technologies, "particularly if the latest shiny innovation increases market share." As for patients, a key condition for allocative efficiency is that "face the right price for the health care that they consume," which is mostly hidden by the protection that insurance provides.

The economists also address medical malpractice as a driver of health expenses. Although a "popular explanation for inefficiency offered by physicians and provider groups," they say that evidence suggests that the malpractice environment is not a primary driver of higher health care spending, and strict damage caps or other reforms are not likely to result in first- or even second-order savings.

The paper concludes by stating that there is "no single strategy that is likely to achieve efficient use of health resources." However, if the nation first ensures that health care resources are used more productively, the authors say, "we will be in a much better position to move toward spending the 'right' amount on health."